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Fiscal 2009 sales advanced 17.0% to $101.1 million; fourth quarter sales increased 9.2% to $24.8 million
• Net income for fiscal 2009 was $17.5 million, 16.2% above prior year
• Fourth quarter orders were $20.5 million; Full-year orders were $73.9 million
• Backlog at fiscal-year end down 36% to $48.3 million
• Strong balance sheet: $46.2 million in cash and investments and no long-term bank debt
BATAVIA, NY, May 29, 2009 – Graham Corporation (NYSE Amex: GHM), a manufacturer of critical equipment for the oil refinery, petrochemical and power industries, today reported financial results for its fourth quarter and fiscal year ended March 31, 2009. Net sales were $24.8 million in the quarter, up $2.1 million, or 9.2%, compared with net sales of $22.8 million in the prior year’s fourth quarter. For the year ended March 31, 2009 (“fiscal 2009”), revenue was a record $101.1 million, 17.0% above revenue of $86.4 million for the fiscal year ended March 31, 2008 (“fiscal 2008”).
Net income in the fourth quarter was $3.6 million, or $0.35 per diluted share, a decline of 14.6% compared with net income of $4.2 million, or $0.41 per diluted share, in the prior year’s fourth quarter. Net income in fiscal 2009 was $17.5 million, up $2.4 million, or 16.2%, over net income of $15.0 million in fiscal 2008. On a per diluted share basis, net income in fiscal 2009 was $1.71 compared with $1.49 in fiscal 2008, a 14.8% improvement.
Mr. James R. Lines, President and Chief Executive Officer of Graham, commented, “Fiscal 2009 sales just over $100 million and net income of $17.5 million were records for Graham, and represent a great accomplishment by our employees. Nonetheless, the year presented challenges as our markets abruptly changed mid-year. The resilience of Graham and its ability to react quickly to changes in our markets allowed us to maintain our efficiencies, adjust our cost structure and put ourselves in a strong position to weather and, where possible, take advantage of this current down cycle."
Solid Revenue Growth in Quarter
For the fourth quarter, ejector sales were up 22.6% to $8.5 million and sales of condensers advanced 27.3% to $7.8 million. The remaining product lines (aftermarket, heat exchangers, and pump packages) were down 11.9% to $8.5 million. Ejector and condenser sales in the fourth quarter were driven by orders received in the latter half of fiscal 2008 and first half of fiscal 2009, primarily from refinery and petrochemical projects.
representing 36% of total sales, down from $11.4 million, or 50% of total sales, in the same quarter of fiscal 2008. Decreased sales to the Middle East, South America and Western Europe were somewhat offset by increased sales to Asia and
In Graham’s leading industries, 37% of sales in the fourth quarter were to the refining industry, compared with 33% in the same period of the prior fiscal year, and approximately 35% of sales were to the chemical/petrochemical industry, compared with 32%, in the fourth quarter of fiscal 2008.
Managing Operational Effectiveness
Gross profit was $9.6 million, or 38.8% of sales, in the fourth quarter, compared with $8.9 million, or 39.3% of sales, in the same period of the prior fiscal year, but improved over gross margin in the trailing third quarter of 37.9%.
Selling, general and administrative (“SG&A”) expenses were $3.5 million, or 14.1% of sales, in the fourth quarter compared with $3.3 million, or 14.6% of sales, in the fourth quarter of fiscal 2008. Costs related to Graham’s ongoing initiatives to improve manufacturing efficiencies and commission accruals, as a result of higher sales, caused the slight increase in SG&A expenses in the current year’s fourth quarter compared with the same quarter of fiscal 2008.
In the fourth quarter, Graham's workforce was restructured by eliminating certain management, office and manufacturing positions. As a result, the quarter’s results included a restructuring charge of $559 thousand, which included severance and related employee benefit costs. This restructuring is expected to yield approximately $2.7 million in annual cost savings.
Mr. Lines noted, “The restructuring steps we took in the fourth quarter resulted from the sudden and major shift in demand from the industries we serve. We felt that the quick drop in order placement made it necessary to adjust the organization’s size to new expectations and to take quick action to maximize efficiencies. As a result of careful planning over the past several years, we are a more nimble, efficient and flexible organization than we had been in prior cycles. We were therefore able to respond quickly when this down cycle hit. We consequently expect that, although the top line decline could be significant going forward, there will be less impact to our bottom line compared with prior cycle bottoms. Likewise, we are better positioned than we were in 2004 and 2005 to capture greater market share more quickly when demand once again increases.”
Interest income in the fourth quarter of fiscal 2009 declined to $30 thousand compared with $227 thousand in the same period of the prior fiscal year, primarily as a result of a significant decline in current treasury yields compared with a year ago.
Graham’s effective tax rate in fiscal 2009 was approximately 35%, compared with an effective tax rate of around 32% for fiscal 2008. The increase was due to a higher level of pretax income relative to the allowable level of tax deductions. The effective tax rate for the fourth quarter of fiscal 2009 was 36%.
Fiscal 2009 sales increased in all product categories compared with fiscal 2008. Sales of condensers advanced 8.2% to $22.9 million and ejector sales increased 5.0% to $38.5 million. The remaining product lines (aftermarket, heat exchangers, and pump packages) increased 38.9% to $39.7 million. Approximately 10% of manufacturing production hours were outsourced in fiscal 2009.
Sales to the refining industry accounted for 46% of revenue in fiscal 2009, up from 43% in fiscal 2008. Chemical/petrochemical sales were 27% of fiscal 2009 revenue, compared with 31% in fiscal 2008, and 27% of fiscal 2009 sales were to other industrial applications, compared with 26% in fiscal 2008.
SG&A expenses were $14.8 million, or 14.7% of sales, in fiscal 2009 compared with $13.1 million, or 15.1% of sales, in fiscal 2008. The increase was due to higher variable compensation costs related to the increase in sales and net income.
Strong, Flexible Balance Sheet with Significant Cash Position
Cash, cash equivalents and investments at March 31, 2009, were $46.2 million, compared with $36.8 million at March 31, 2008. Approximately $41.1 million was invested in U.S. Treasury notes with maturity periods of 91 to 180 days at March 31, 2009. As of March 31, 2009, Graham had no borrowings and $8.8 million of outstanding letters of credit under its $30.0 million revolving line of credit facility.
Net cash provided by operating activities for the fourth quarter was $3.6 million compared with $3.7 million in the prior year’s fourth quarter. For fiscal 2009, net cash provided by operating activities was $11.0 million, compared with $19.7 million in fiscal 2008. The year-over-year decrease was a result of higher working capital requirements due to greater sales volume, an increase in income taxes paid and a larger contribution to Graham’s defined benefit pension plan.
Capital expenditures were $299 thousand in the fourth quarter and $1.5 million for all of fiscal 2009, compared with $368 thousand in last year’s fourth quarter and $1.0 million for all of fiscal 2008. Capital expenditures for fiscal 2009 were below the Company’s previous estimate and reflect cost conservation measures implemented beginning in the third quarter. Capital expenditures in fiscal 2010 are expected to be approximately $1.0 million, of which approximately 65% will be used for machinery and equipment, 28% for information technology and 7% for other expenditures, with an estimated 50% of expected capital expenditures to be used for productivity improvements and the balance for capitalized maintenance and other general purposes.
Weak Near-term Outlook; Strong Long-term Fundamentals
Orders during the fourth quarter of fiscal 2009 were $20.5 million, below $35.1 million in orders received in the prior year’s fourth quarter, but measurably improved over the $8.1 million in orders received in the trailing third quarter. For the full year, orders in fiscal 2009 were down 31% to $73.9 million compared with $107.1 million in fiscal 2008. Orders were down in all product categories for both the fourth quarter and full fiscal year.
Graham’s backlog was $48.3 million at March 31, 2009, down 36.0% compared with $75.7 million at March 31, 2008. During fiscal 2009, Graham was notified by customers that three projects with a value of $3.3 million were cancelled and five orders with a value of $4.4 million were placed on hold (suspended) pending further evaluation. Backlog has been reduced for the cancelled projects, but does include the orders placed on hold (suspended). Approximately 38% of projects in backlog are for refinery projects, 35% for chemical and petrochemical projects and 27% for power and other industrial commercial applications, compared with 49%, 28% and 23%, respectively, at March 31, 2008. Approximately 90% of backlog is expected to ship in the next twelve months.
Mr. Lines stated, “We continue to believe in the long-term prospects of our markets, but expect fiscal 2010 to be down measurably from fiscal 2009. We anticipate that fiscal 2010 revenue could be down between 30% and 40% from fiscal 2009. Gross margin will also be impacted by the downturn, both as a result of lost leverage on lower volume, but also because of the lower margins currently defined in our backlog as a result of lower demand. We expect that gross margin will be in the 28% to 31% range.”
He concluded, “It is difficult to determine the length of time that the bottom of this cycle will last for us, but we have historically lagged economic recovery by about 12 months. Moreover, we believe that our order trend will be a six- to 12-month leading indicator. Looking beyond this cycle, long-term forecasts for global energy requirements and demand for chemical and petrochemical-based products indicate sustained growth as less developed economies in the Middle East and
Stock Buyback Program
On January 29, 2009, Graham's Board of Directors authorized a stock repurchase program, permitting the Company to repurchase up to 1.0 million shares of its common stock. Graham repurchased 277 thousand shares under the program in the fourth quarter at a cost of $2.3 million, or approximately $8.25 per share, leaving 723 thousand shares available for repurchase through July 2009.
Mr. Jeffrey Glajch, Graham’s Vice President of Finance & Administration and Chief Financial Officer, commented, “Our share repurchase authorization reflects the Board’s confidence in Graham’s future. We entered the current recession with a very strong balance sheet and cash position and consider the repurchase program to be a wise use of a small portion of our cash resources.”
Webcast and Conference Call
Graham will host a conference call and live webcast today at 11:00 a.m. ET. During the conference call and webcast, James R. Lines, President and Chief Executive Officer, and Jeffrey Glajch, Vice President - Finance & Administration and Chief Financial Officer, will review Graham’s financial and operating results for the fourth quarter and 2009 fiscal year as well as Graham’s strategy and outlook. A question-and-answer session will follow.
Graham’s conference call and live webcast can be accessed as follows:
The teleconference can be accessed by dialling 1-201-689-8560 and referencing conference ID number 323111 approximately 5 - 10 minutes prior to the call.
The conference call and webcast will be archived and can be reviewed as follows:
A replay can be heard by calling 1-201-612-7415, and entering the account number 3055 and conference ID number 323111. The telephonic replay will be available through June 5, 2009, at 11:59 p.m. Eastern Time.
ABOUT GRAHAM CORPORATION
With world-renowned engineering expertise in vacuum and heat transfer technology, Graham Corporation is a global designer, manufacturer and supplier of ejectors, pumps, condensers, vacuum systems and heat exchangers. For over 70 years, Graham has built a reputation for top quality, reliable products and high-standards of customer service. Sold either as components or complete system solutions, the principal markets for Graham’s equipment are the petrochemical, oil refining and electric power generation industries, including cogeneration and geothermal plants. Graham's equipment can be found in diverse applications, such as metal refining, pulp and paper processing, ship-building, water heating, refrigeration, desalination, food processing, pharmaceutical, heating, ventilating and air conditioning.
Graham Corporation’s reach spans the globe. Its equipment is installed in facilities from North and South America to Europe, Asia, Africa and the
For more information contact:
Jeffrey Glajch, Vice President Finance and CFO Deborah K. Pawlowski, Kei Advisors LLC
Phone: (585) 343-2216 Phone: (716) 843-3908
FINANCIAL TABLES are available in PDF form